Question

In response to the adverse effects of COVID-19, the federal government introduced some palliative measures such as Canada Emergency Response Benefit (CERB) and Canada Emergency Wage Subsidy (CEWS).

1. Are CERB and CEWS tools of fiscal or monetary policies?
2. Which component(s) of aggregate demand (AD) would CERB directly impact?
3. Which component(s) of aggregate demand (AD) would CEWS directly impact?
4. Is CERB a transfer payment? Explain
5. On Wednesday, April 15, 2020, the federal government made some changes to CERB eligibility criteria. Information on the Canada Revenue Agency (CRA)’s website states that “The CERB is now available if you earned $1000 (before taxes) or less during an eligibility period.” Now that the eligibility criteria have been relaxed, what effect would it have on the labour supply of those who will earn $1001 (before taxes) during an eligibility period?
6. Given that the federal government intends to phase out the CERB in September 2020, what do you think the government anticipate would happen to the unemployment rate by September 2020?
7. For CERB to achieve the desired objective, what do you think the federal government anticipates would happen to the marginal propensity to expend (MPE)?

Answer 1

Both these polcies are expansionary fiscal policies wherein government will put money in the hands of people through certain ways so that aggregate demand which has shifted left will shift back to right again and real GDP which has recessionary gap can be corrected.

CERB aims at shifting AD to right. CEWS aims to shift Aggregate supply to right.

both these policies aim to shift LRAS back to potential which had shifted left due to AD and AS shifting left due to COVID-19.

Yes, this is a transfer payment as claimants will get it if they are eligible.Condition is given in question.

All those who earned more than $1000 are not eligible. There would be unrest and they may ask money on prorata basis and may claim that thy should also be compensated.

When CERB is phased out then unemployment rate would decrease as more people will have to work as they stop getting these benefits.

As people get more income they will be spending more is the assumption here. However government should also focus on fiture consumer and employer confidence or else enough spendings will not happen.